Financial market research and analysis

The day ahead will see markets attempt to recuperate from a hefty sell-off on Monday with HSBC, BP, Microsoft and Caterpillar, among the companies reporting Q3 results.

-Italy, Spain put into effect strictest lockdown measures since spring
-Ant Group set to raise $34.5 billion in biggest ever IPO
-Oxford / AstraZeneca vaccine produces immune response in elderly
-US stimulus talking deadlocked but ongoing

-Wall Street has its worst day since early September
-Travel and energy stocks sold off as new lockdowns come into force
-SAP shares sink 20% on Monday after profit warning
-Oil prices drops 3% on fuel demand concerns in second wave
-Turkish lira (USD/TRY) devalued to 8 handle for first time

MARKETS
The tone looks a little more mixed to start the day in Europe while Asian markets all fell in reaction to the worst daily drop on Wall Street since early September. It was another nervous Monday- something that’s becoming a bit of a pattern. Traders seem to dump stocks following a weekend of upsetting stimulus and/or virus headlines before finding their feet over the course of the week.

On Monday the losses were heaviest in Germany after SAP issued a profit warning and saw its stock tank 20%. But it was travel and leisure names that as a group caught the biggest punishment in reaction stricter lockdown measures in Spain and Italy. Italy has ordered bars and restaurants to shut at 6pm and all gyms, swimming pools, cinemas and theatres will close, while schools will stay open. It was the harsh lockdown Italy had to introduce to contain the first wave that caught the attention of the markets. What Italy does in the second wave – and whether it can avoid a national lockdown – could again be key to market psyche.

DAY AHEAD
HSBC earnings
HSBC shares are up 5% on Monday in response to a smaller than expected year-on-year drop in quarterly profits. The prospect of a "conservative" dividend could entice yield-hungry investors back into the shares. The profit-beat was essentially because the bank set aside much less in loan-loss reserves- arguably a rather unconservative way to pay its dividend in a global recession.

The HSBC share price has lost over half its value since the onset of the pandemic with no sign of a lasting pickup in sight. The bank chopping its dividend and its support of China’s security law in Hong Kong have kept investors away while other segments of the market have improved.

BP earnings
BP has confounded estimates for another quarterly loss by making an underlying replacement cost profit of $100 million. New boss Bernard Looney described the results as "performing while transforming." The oil giant has made waves with its refocus on its transition to renewable energy and its net zero carbon emissions target. Still nearer term, the company’s fate is still tied to oil, which although higher in Q3 from Q2 – was down on the year-ago quarter. The lower oil prices are usually good for the refinery part of the business but this year that has been hurt by the pandemic, limiting the usual Big Oil diversification.

Microsoft earnings
Revenues are expected at $35.7 billion while EPS is forecast at $1.55. Microsoft stock is up by 34% this year and 50% over the last 12-months.

Caterpillar earnings
Revenues are expected at 9.78 billion (-23% y/y) while EPS are expected at $1.17 (-56% y/y). CAT is expected to see hefty annual declines on the top and bottom line thanks to lower capital spending as a result of the pandemic. Manufacturing activity has been on the rise in Q3- US ISM manufacturing data averaged 55 in Q3 - so the order book for Q4 could show brighter days ahead.

US durable goods data
The growth in US durable goods orders is expected to rise slightly in September but excluding defence the picture is different with a big decline on the cards.